Just yards from the Lake Minnetonka shoreline, a grassy empty plot is slated to become the lake’s first hotel in nearly half a century.

It’s a landmark project, and as one of the largest and tallest buildings there, it’s also feeding a debate over whether it will make the historic town more of a destination in the Twin Cities or forever change the face of a small town fiercely proud of preserving its past.

Tension is growing as plans for the four-story boutique hotel proceed, prompting a fourth Heritage Preservation Commission member to offer her resignation on Thursday in protest. While supporters say the hotel will boost tourism and revenue, critics fear it threatens Excelsior’s quintessential small-town character, and would set a precedent for larger buildings.

“You wouldn’t want to see an Ikea superstore in Grand Marais,” said Excelsior attorney Mark Kelly, a vocal critic. “It’s in the interest of the state of Minnesota ... as small cities increasingly are going to be under this stress. Maybe this should be preserved.”

Like Stillwater and other small towns, Excelsior has built its image as a quaint throwback to the past. Although it has only 2,400 residents in its one square mile, it’s considered the downtown for 20,000 residents in nearby lake towns and has been a Twin Cities destination since the 1880s, when city folk flocked there for the legendary amusement parks and grand hotels.

Now, as Excelsior continues to revitalize its downtown and drum up tourism — with the controversial hotel and new attractions such as pedicabs starting next month — it’s started a classic small-town debate about its future: how to preserve what longtime residents have grown to love while still increasing tourism and revenue.

“That’s what Excelsior is facing. How do you stay relevant and move it forward without losing your historic past?” Mayor Mark Gaylord said. “There’s a balance we need to strike.”

Not just another suburb

This isn’t the first time Excelsior has struggled trying to find that balance.

The city rejected Hennepin County’s plan for a contemporary modern glass and steel library like ones in Plymouth or Maplewood after outcry it didn’t fit in, and revised it with a brick exterior to better fit the town’s norm.

Now the debate is playing out largely between the Heritage Preservation Commission and the City Council — which overwhelmingly supports the $12 million hotel. Like a lot of metro cities’ historic commissions, Excelsior’s regulates the small historic district through such measures as height restrictions or recommended paint colors. It denied the hotel design twice, saying it was too large, too tall and out of character for Excelsior.

“It’s like bringing a pony into the dog kennel,” said commission member Steve Finch.

Usually the City Council agrees with the commission’s decisions — until now. The council, which has the ultimate authority, overturned the commission’s denial in February, giving the hotel the green light.

“It’s unprecedented,” said Tim Caron, the commission’s adviser.

Not long after Caron returned to Minnesota from Boston, attracted to New England-looking Excelsior, he helped start the Heritage Preservation Commission in 1997 and was its first chairman. As in a lot of small towns, Excelsior’s family-owned grocery and hardware stores had died off, but the city wanted to preserve the historic brick buildings, now housing restaurants and boutiques.

“This was, I’m hoping, an unusual decision,” said Caron, whose wife, Jennifer, is on the City Council. “If we keep building larger and larger buildings, are we still going to be the place people come for? Big suburban development can be found anywhere.”